There’s Still Plenty to Love with Intel

Getting the Street to see the bright side of Intel (NASDAQ: $INTC) has been a difficult task. As one of the lone supporters of this company that sees better days ahead, I will tell you that the company’s slow progression out of the dying PC environment has been frustrating watch. But I don’t believe it serves investors’ interest to focus solely on the company’s near-terms results.

I’m not dismissing the fact that Intel has dropped the ball on the mobile devices market. But there’s also a point when the company’s recent struggles against the likes of Qualcomm (NASDAQ: $QCOM) and ARM Holdings (NASDAQ: $ARMH)have been beaten to death. Tat the risk of sounding like an Intel apologist, I believe the company’s mobile advancements — as modest as they may appear — are steps in the right direction.

To that end, it’s time that investors cease their obsession with the company’s quarter-to-quarter performance, and adjust their expectations as Intel begins to think differently. On Tuesday, the Street will be looking for Intel to post a profit of 53 cents per share on revenue of $13.47 billion. While earnings are expected to decline year-over-year by 7 cents per share, revenue is expected to come in essentially flat.

The good news, though, and perhaps a sign of optimism, the Street’s profit estimates have climbed up by 3 cents over the past three months. But as I’ve said, I wouldn’t put too much weight on what Intel reports on Tuesday. Not to the extent it blinds the operational progress the company is making in other areas.

Also, while it’s easy to discount Intel on the basis of the company’s consecutive quarters of revenue declines, including a 5% drop in the July quarter, investors miss the fact that the company is still meeting expectations on margins, which have grown for the past several quarters. And company’s management expects more margin expansion this current quarter.

What this tells me is that as downtrodden as Intel may appear, that management has figured out ways to bring back operational efficiency means that the company is still in capable hands. Not to mention, the company has laid down the foundation for its long term-success, which includes (among other things) perusing growth in China and emerging markets and reinvesting cash flow back into research and development.

In that regard, I’m willing to give management the time it needs to make the necessary adjustments to grow market share in that all-important mobile category. And I know this is where things get sketchy. I’m not suggesting that Intel is suddenly going to overtake Qualcomm and Broadcom (NASDAQ: $BRCM) but I believe Intel has the ability to emerge as a legitimate player not only in mobile devices, but also baseband chips.

That Samsung (OTC: $SSNLF) has chosen Intel’s Clover Trail+ mobile chip processor to power its Galaxy Tab is a small step. But it’s one that can turn into a giant leap. This also demonstrates that Intel is — in fact — able to optimize Google’s (NASDAQ: $GOOG) Android platform, which some people in the media have argued Intel couldn’t do.

So as I’ve said on more than one occasion, taking a position here on Intel should be about what you believe the company is able to do the future. Judging Intel solely on a quarter to quarter basis doesn’t work. And given management’s plans to grow the company’s chip business in the emerging markets, shares of Intel can command a long-term fair market value of $32 per share on the basis of improved margin and free cash flow.